ENVIRONMENTAL CLEAN TECHNOLOGIES LIMITED. — Annual Report 2006

Sep 12, 2006

Appendix 4E Preliminary final report Period ending 30 June 2006

Results for announcement to the market

Operating Performance				\$3000
Revenue from ordinary activities	đοwn	99.20%	to	155
Loss from ordinary activities after tax attributable to members	down	45.09%	to	1.002
Net loss for the period attributable to members	down	45.09%	to	$1.002$ .

On 19 November 2004 the Company was placed into Voluntary Administration. At 30 June 2005 the Company was in voluntary administration. On 15 December 2005, the Deed of Company arrangement was effectuated and terminated with full control being passed onto the current Directors.

On this basis it may be inappropriate to compare the key information provide above between the different financial years.

Dividends

There are no or distribution reinvestment plans in operation and there has been no dividend payment during the financial year ended 30 June 2006, nor is any dividend payment proposed.

MANAGEMENT DISCUSSION AND ANALYSIS

Overview

The net loss after tax of the consolidated entity for the year ended 30 June 2006 was \$1,002,000 (2005: net loss of \$1,825,000)

Principal Activities

The principal activity during the year of entities within the consolidated entity was reconstruction of the group's operations and continued exploitation of the company's technologies.

Key events during the Year and to the date of this report

• $(a)$ On 18 November 2004, Environmental Solutions International Ltd (Subject to Deed of Company Arrangement) (Receivers and Managers Appointed) ("the Company") and other wholly owned subsidiaries were placed into Receivership.
• $(b)$ As a consequence of the above appointment, on 19 November 2004, the Company was placed into Voluntary Administration.
• A proposal to enter the Company into a Deed of Company Arrangement was approved at a $(c)$ meeting of creditors held on 16 December 2004. On 6 January 2005, the Deed of Company Arrangement was executed and Environmental Solutions International Limited, previously subject to voluntary administration, became subject to a Deed of Company Arrangement.
• The Receivers and Managers realised most of the Company's property, plant and equipment $(d)$ and contracts through private sale, public tenders and public auctions. The proceeds from the sale of the Company's assets were paid to the Company's secured creditor, the Commonwealth Bank of Australia, to partially reduce its outstanding debt.
• On 25 August 2005 the Company executed a Reconstruction Deed with Rofin Australia Pty Ltd $(e)$ detailing the terms of a recapitalisation and restructure of the Company. On 30 September 2005, the Creditors of the Company approved the restructuring of the Company and also approved a variation to the existing Deed of Company Arrangement ("DOCA") so as to facilitate the restructure. On 11 October 2005 the Varied Deed of Company Arrangement was executed.
• $(f)$ The Reconstruction Deed effectuated the consolidation of the Company's share capital, a capital raising (being a placement of shares with a sophisticated investor), payment of cash and the issue of debt capitalisation shares for the benefit of creditors under the Varied DOCA and Trust Deed, the lifting of the Company's ASX trading suspension and the termination of the DOCA and coming into effect of a Trust Deed for the benefit of creditors.
• $(g)$ New directors were appointed by the Administrators to the Company on 27 October 2005, although their powers were suspended until 15 December 2005, at which date Mr Bryan Hughes retired as Deed Admininistrator. The appointment of the new directors was ratified at a shareholder meeting held on 5 December 2005.

• $(h)$ On 15 December 2005, the Deed of Company Arrangement was effectuated and terminated with full control being passed onto the current Directors of the Company, On removal from Administration the remaining assets of the company, other than all rights and property pertaining to the Enersludge technology were assigned to the Trustee pursuant to Listing Rule 11.2 of the ASX and the terms of the Deed of Company Arrangement, and all debts payable by, and claims against the company (actual or contingent) arising before the date of appointment of the Administrator, were extinguished.

• Rofin Australia Pty Ltd paid the \$2,420,000 to the Company and \$1,150,000 of these funds were $(i)$ made available to the creditors and the trustees. The \$1,150,000 represents \$630,000 which has been paid to Commonwealth Bank as the secured creditor, \$300,000 which has been paid to the unsecured creditors trust and \$220,000 which was paid to the Deed Administrators by Rofin Australia Pty Ltd.

• $(i)$ On 15 January 2006, the Deed of Company arrangement was wholly effectuated, therefore removing the Company from external administration:
• On 19 January 2006, the Company was reinstated to the official quotation on the ASX $(k)$ following termination of the administration and the completion of a capital raising;
• $(1)$ On 27 January 2006, the Company entered into a strategic relationship with Australian Native Landscapes (ANL), a company specialising in the handling of biosolids on a large scale for use in horticulture and agriculture.
• $(m)$ On 10 February 2006 the Company entered into an agreement to purchase 100% of Asia Pacific Coal and Steel Pty Ltd for a consideration of 16,000,000 fully paid ESI shares. The agreement was conditional upon both ESI and APCS shareholder approval and upon ESI completing due diligence on APCS.
• $(n)$ The acquisition of APCS was approved by ESI shareholders at a meeting on 12 May 2006. All conditions precedent in relation to the 100% acquisition of APCS were satisfied on 25 May 2006, as such settlement was effectuated at that time.
• The acquisition provides ESI access to APCS' patented dewatering technology which the $(0)$ Company believes will provide an economical solution to its aggressive program to roll out transportable Enersludge units which can be applied in cooperation with contract holders or waste management authorites.
• $(p)$ In addition, the patented Coldry Process is a unique, low cost technology that reduces moisture content in brown coal by up to 78% and produces a pellet that has greater density and calorific (heating value) than raw brown coal and is capable of being shipped and transported over long distances, unlike raw brown coal.
• $(q)$ APCS also owns the patents to the Matmor Process which employs a patented retort using "composite" brown coal pellets as a reductant to produce zinc, iron and other metals from low grade ore or metal wastes at a much lower cost than traditional metallurgical processes and with substantially less emissions.
• $(r)$ On 26 March 2006, the Company announced an in-principal agreement for Gippsland Basin brown coal assets. The Company will jointly develop the extensive brown coal fields in Victoria's Gippsland Basin, held by Victorian Coal Resources Pty Ltd ("VCR"). A memorandum of understanding to this effect was signed with VCR on 4 July 2006. Under the MOU, the matching of the commercialised "Clean Coal" technology with the vast amounts of Victorian Brown coal held by VCR, to produce CO2 reduced feedstock for power generation (up to 30% reduction), low cost high quality steel production, gasification and coal to oils has the opportunity for an entire new export market.

	Note		Consolidated
		2006 \$'000	2005 \$'000
Revenue	$\boldsymbol{2}$	155	19,473
Material and Subcontractor expenses			(10, 420)
Employee benefits expense		(11)	(2, 154)
Depreciation and amortisation expense			(66)
Borrowing costs			(4)
Occupancy expense		(19)	(231)
Patent fees		(48)
Corporate costs		(309)
Consultancy fees		(450)
Insurance expense		(23)	(243)
Costs resulting from going into administration and write offs to recoverable amount		(220)	(7, 287)
Other expenses from ordinary activities		(77)	(893)
Loss Before Income Tax Expense		(1,002)	(1, 825)
Income tax expense
Loss After Related Income Tax Expense		(1,002)	(1,825)
Net Loss attributable to the members of the parent entity		(1,002)	(1,825)
Transfer from asset revaluation reserve			3,176
Total Revenue and Expense Attributable to Members of the Parent Entity Recognised Directly in Equity		(1,002)	3,176
Total Changes in Equity Other than those Resulting from Transactions with Owners as Owners		(1,002)	1,351
Earnings Per Share - Basic (cents per share)		(0.41)	(2.37)

INCOME STATEMENT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006

l,

BALANCE SHEET AS AT 30 JUNE 2006

	Note		Consolidated
		2006 \$'000	2005 \$7000
Current Assets
Cash and cash equivalents		223
Trade and other receivables		141	9
Other current assets		41
Total Current Assets		405	9
Non-Current Assets
Plant and Equipment		13
Goodwill		1,854
Total Non-Current Assets		1,867
Total Assets		2,272	9
Current Liabilities
Trade and other payables		300	947
Total Current Liabilities		300	947
Total Liabilities		300	947
Net (Liabilities)/Assets		1,972	(938)
Equity
Issued Capital	$\overline{4}$	27,284	23,254
Accumulated Losses		(25, 312)	(24,310)
Total (Deficiency)/Equity		1,972	(1,056)

		Consolidated
	Issued Capital \$	Accumulated losses \$	Other Reserves \$	Total Equity 5
At 1 July 2004	23,254	(25,661)	3.176	769
Issue of shares
Transfer from asset revaluation reserve		3,176	(3,176)
Loss for the period	$\sim$	(1,825)		(1,825)
At 30 June 2005	23,254	(24,310)		(1,056)
Issue of shares	4,030		$\mathbf{r}$	4,030
Loss for the period		(1,002)		(1,003)
At 30 June 2006	27,284	(25, 312)		1,971

STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006

CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2006

	Note	2006 \$'000	Consolidated Inflow (Outflow) 2005 \$'000
Cash Flows From (Used In) Operating Activities
Receipts from customers			21,103
Payments to suppliers and employees		(1, 281)	(25, 566)
Interest Received		17
Net Cash Flow From (Used In) Operating Activities		(1,264)	(4, 463)
Cash Flows from (Used in) Investing Activities
Payments for property, plant and equipment		(13)
Net Cash (Used In) Investing Activities		(13)
Cash Flows from Financing Activities
Proceeds from the sale of fixed assets			961
Repayment from borrowings		(812)	(79)
Proceeds from the issue of shares		2,430
Net Cash from(Used in) Financing Activities		1,618	882
Net Increase (Decrease) in Cash Held		341	(3,581)
Cash held at the beginning of the financial year		(118)	3,463
Cash at the End of the Financial Year		223	(118)

$\delta \gamma_{\mu \nu}$

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LIMITED
Appendix 4E
Preliminary final report

Reconciliation of Cash	2006 \$7000	2005 \$'000
For the purposes of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments. Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the balance sheet as follows:
Cash at bank	223
Interest bearing Liabilities		(118)
	223	(118)

Non-cash financing and investing activities

On 25 May 2006 settlement was completed on the acquisition of Asia Pacific Coal and Steel (APCS). The consideration for the 100% ownership of the shares in APCS was 16,000,000 shares in ESI.

NTA backing	2006 \$7000	2005 \$'000
Net tangible asset backing per ordinary security	0.04	$-1.21$
	cents	cents

Notes to the Preliminary Final Report

1. Impact of Adopting AIFRS

The impacts of adopting AIFRS on the total equity and profit after tax as reported under Australian Accounting Standards applicable before 1 July 2005 ('AGAAP') are illustrated below:

Reconciliation of total equity as presented under AGAAP to that under AIFRS а.

There are no material differences between the total equity as presented under AIFRS and those presented under AGAAP.

Reconciliation of profit after tax under AGAAP to that under AIFRS $\mathbf{b}$ .

There are no material differences between the profit after tax as presented under AIFRS and those presented under AGAAP.

Explanation of material adjustments to the Cash Flow Statement $\mathcal{C}_\star$

There are no material differences between the cash flows as presented under AIFRS and those presented under AGAAP.

Notes to the Preliminary Final Report (continued)

	Consolidated
	2006 \$'000	2005 \$7000
Loss from Ordinary Activities 2.
The loss from ordinary activities before income tax includes the following items of revenue and expense:
(a) Revenue from ordinary activities
(i) Operating Revenue
Sales Revenue:
Rendering of services	12	11,083
Share of Joint Venture Rendering of Services		1,221
	12	12,304
Interest Revenue:
Bank deposits	17
Total Operating Revenue	29	12,304
(ii) Non-Operating Revenue
Other Revenue:
Debts forgiven under DOCA	126	6,208
Proceeds from sale of assets		961
Total Non-operating Revenue	126	7,169
Total Revenue from ordinary activities	155	19,473
(b) Expenses
Depreciation or amortisation of:
Plant and Equipment		66
Intangibles: Technologies
Goodwill
Transfer to/from provisions:
Employee entitlements
Annual leave		(412)
Long service leave		(331)
Operating lease minimum rental expenses		87
Intangible assets recoverable amount write down		150
Finance Leases Finance Charges		I
Loans to directors forgiven		135
Costs resulting from going into administration	(220)

Notes to the Preliminary Final Report (continued)

3. Issued Capital	2006 \$'000	2005 \$7000
(a) Issued Capital
245,516,648 fully paid ordinary shares (2005:77,097,512)	27,284	23,254
	2006
	No. $000^{\circ}$	\$700
Fully Paid Ordinary Shares
Balance at beginning of the financial year Issue of shares	77,097	23,254
1:5 Consolidation of Shares	230,082 (61, 663)	4,030
Balance at end of the financial year	245,517 2274282158303030300000000	27,284
	2006 \$7000	2005 \$'000
4. Accumulated Losses
Balance at beginning of financial year	(24,310)	(25, 661)
Net Loss attributable to members of the parent entity	(1,002)	(1, 825)
Transfer from Asset revaluation reserve		3,176
Balance at end of financial year	(25,312)	(24,310)

5. Movement in interest in controlled entity

Acquisition of controlled entities

Name	Date of Acquisition	Consolidated entity's interest	Consideration	consolidated net profit	Contribution to
		2006	2006	2006	2005.
		K			S,
Asia Pacific Coal and Steel 25 May 2006 Pty Ltd		100%	1,600,000	(243.002)	-

Asia Pacific Coal and Steel Pty Ltd was purchased during the financial year. Settlement of the transaction took place on 25^th May 2006. Consideration for the purchase was 16,000,000 ESI shares.

Compliance statement

• 1. This statement has been prepared in accordance with AASB Standards, other AASB authorities pronouncements and Urgent Issues Group Consensus Views or other standard acceptable to ASX.
• This report, and the accounts upon which the report is based (if separate), use the same accounting policies. $\overline{2}$ .
• 1. This report gives a true and fair view of the matters disclosed.
• This report is based on accounts to which have not yet been audited, no audit report is attached. $4.$
• The audit may contain a qualification. This due to uncertainty surrounding the opening balances prepared 5. while the company was in administration and their compliances with AIFRS.

SEAN HENBURY Company Secretary 13 September 2006